WASHINGTON (Jan. 14, 2015) – In response to President Obama’s upcoming speech at Cedar Falls, Iowa on broadband issues, Robert Atkinson, President of the Information Technology and Innovation Foundation (ITIF), releases the following statement.

ITIF disagrees with the direction that will be laid out by President Obama. While municipal networks can be a feasible mechanism to bring broadband to unserved areas, they are generally not how policymakers should go about enabling competition in areas already served by broadband. Ironically enough, the numbers from Cedar Falls’ own network shows this to be the case. The city and the utility have issued bonds and taken out loans totaling over $20 million, a portion of which has recently been downgraded due to rising programming costs, highly leveraged debt, loss of customers to cable, and declining liquidity. Furthermore, Cedar Falls Utilities (CFU) is only able to offer the gigabit speeds the President touts at a minimum of $135/month – just for Internet access. Not only is this is not a sustainable way to prop up competition, but the municipal offering is not a material improvement over private services.

The notion that American businesses are at a competitive disadvantage because of our broadband speeds is totally inaccurate. Business in any city of moderate size can already subscribe to fiber services, and there is little reason for a small business to require access speeds of 1 Gbps. Any small-to-medium sized Internet-based company would outsource its hosting, and large Internet companies are far more interested in cheap power to run server farms – the access part is easy. Furthermore, on the consumer side, the U.S. is a leader in broadband speeds, with our more urban states consistently ranking in the top 10 against similarly sized countries.

In addition, municipal networks cherry pick the least costly areas to serve in a region. By serving only cities, municipal networks take customers from areas that are less expensive to serve, ultimately increasing the cost to rural customers. There are plenty of constructive ways cities can work with all providers to help enable competition. For example, Google Fiber worked with multiple cities to promote deployment – by making city conduit and rights of way available, streamlining permitting and zoning, and making useful geographic information available to consumers. NTIA points to these “Deployment Enablers” in their recent Public Private Partnership primer, but such policies should be made for all providers if we want competition, not only a government partner.

This announcement, combined with the President’s push towards Title II to regulate broadband providers as public utilities, represents a dramatic reversal in policy that is totally unwarranted by the facts. No doubt there is a sizable populist push for these changes, making the President’s initiative good politics, but bad policy.

###

The Information Technology and Innovation Foundation (ITIF) is a non-profit, non-partisan think tank whose mission is to formulate and promote public policies to advance technological innovation and productivity internationally, in Washington, and in the states. Recognizing the vital role of technology in ensuring prosperity, ITIF focuses on innovation, productivity, and digital economy issues. Learn more at www.itif.org.

Coase and WiFi: The Law and Economics of Unlicensed Spectrum

In 1959, economist Ronald Coase argued for innovative and needed change to the system of spectrum allocation, challenging the prevailing “command and control” model in favor of one based on property rights and auctions. Today, many continue to not only rely on Coase’s insights to support spectrum auctions over command and control, but also invoke Coase’s writings as almost sacred texts opposing any use of spectrum for unlicensed purposes. We believe that this is an inappropriate reading of Coase and that his economic insights provide strong support for unlicensed, as well as licensed, spectrum. Indeed, Coase was primarily attacking a model of governmental command and control that was in dire need of modernizing. But Coase surely never intended his work to be used to support rigid and doctrinaire thinking about spectrum.

This paper examines the support for a new interpretation of Coase, concluding that a mix of both unlicensed and licensed spectrum is well grounded in Coase’s economic pragmatism. There is a wide range of possible ways to define rights in spectrum use; we should craft those rights in such a way that minimizes the costs of arranging the most socially beneficial outcome. Given the tremendous benefits of both licensed and unlicensed applications, we need a spectrum policy grounded in Coasean pragmatism, not Coasean doctrine.

Policy makers should not take an overly-narrow focus on one particular type of efficiency (allocative efficiency) of one particular input (radio spectrum). Using this to focus only on auctions gives short shrift to the obvious and growing value of unlicensed services all around us. Services utilizing unlicensed spectrum are valuable contributors to the economy and should not get short shrift based on misunderstood doctrine.

It is common to think of unlicensed as a gap-filler, as an efficient way to fill guard bands with low-power devices that are unlikely to cause interference to licensed services. While this can be a great opportunity to maximize the use of spectrum, offering up only narrow slices of spectrum is not what unlicensed services deserve. Policy makers should consider new, dedicated unlicensed bands where possible.

The potential for economic growth through new unlicensed platforms, services, and devices is greatest when large, contiguous blocks of harmonized spectrum with simple service rules are available. Wherever possible, we should avoid creating specialized rules to protect particular incumbents from interference, allowing for simpler, cheaper equipment. All and all, this offers the best potential to maximize spectrum use, which is what professor Coase was really after.

WASHINGTON – (January 12, 2015) Spectrum management refers to the regulation, licensing and allocation of the use of bands of the electromagnetic spectrum and is the central component of modern wireless policy. Largely thanks to the work of Ronald Coase, spectrum management has moved beyond the simple “command and control” model of earlier times. However, some still favor doctrine over pragmatism, wanting a regime functioning solely through property rights and auctions.

Coase and WiFi: The Law and Economics of Unlicensed Spectrum, a new report from the Information Technology and Innovation Foundation (ITIF), analyzes the theoretical frameworks that underpin modern spectrum management and argues for policies that embrace a combination of both licensed and unlicensed spectrum. A mixed management regime that recognizes that exclusive licensing is superior in many, but not all, circumstances is ideal for enhancing innovation and development of next generation technologies.

“Much of modern spectrum policy is derived from the writings of economist Ronald Coase,” notes Doug Brake, Telecom Policy Analyst with ITIF and author of the report. “Unfortunately, many now invoke Coase’s work as an almost sacred text opposing any use of spectrum for unlicensed purposes. This is an inappropriate reading of Coase as his reasoning supports a mixed regime of spectrum rights (some licensed and some unlicensed) to maximize productive output.”

The report further argues that policymakers should not focus solely on auctions as a means of allocating spectrum and should look to expand unlicensed use through simplified, uniform technical rules and further develop dedicated unlicensed bands where possible. Unlicensed rules should avoid specialized interference protection measures where possible, permitting maximum flexibility and keeping the cost of equipment down. Such rules offer the best potential to maximize spectrum use, which is what Coase was really advocating for.

“Services utilizing unlicensed spectrum will be a key component of 21st Century technological development and a valuable contributor to the economy,” Brake adds, “They should not get short shrift based on misunderstood doctrine. This would be bad for wireless innovation and ultimately society as a whole.”

The Information Technology and Innovation Foundation (ITIF) is a non-profit, non-partisan think tank whose mission is to formulate and promote public policies to advance technological innovation and productivity internationally, in Washington, and in the states. Recognizing the vital role of technology in ensuring prosperity, ITIF focuses on innovation, productivity, and digital economy issues. Learn more at www.itif.org.

New York, D.C. and Title II

The Washington Post has been reporting a number of stories attempting to show that network operators are telling Wall Street and Washington two entirely different stories, but the statements made tell a different story.

Let's Get Real — We Aren't Talking About Net Neutrality

There are many problems with the public conversation surrounding the Federal Communications Commission's (FCC) net neutrality rule-making: The public discourse struggles to rise above simple catch-phrases, popular antipathy against broadband providers clouds good decision-making and the increasing politicization of tech issues drives policy-by-ideology over rigorous analysis of available trade-offs. But one problem stands out among the rest — we aren't actually arguing about net neutrality. Instead of fiddling with a variety of jurisdictional hooks, none of which are quite right for the job, the FCC should take a step back and allow this problem to be solved the right way — through legislation.